South Korea shifts to private crypto custody after costly security failures and asset losses

South Korea’s National Tax Service (NTS) plans to hire professional private custodians to store the digital assets seized from criminal proceedings. 

The decision to switch from self-custody to private custody is due to embarrassing mishaps on the part of the NTS and other national agencies that caused significant financial and reputational damage. 

Why is South Korea changing its crypto storage policy?

South Korea’s National Tax Service (NTS) has confirmed that it will be switching from self-storage methods to private, professional custody providers within the first half of the year. 

For years, South Korean officials have managed to seize Bitcoin and other tokens using hardware wallets stored in physical evidence rooms, but recent embarrassing and costly security breaches have led to a change. 

Cryptopolitan recently reported that the National Tax Service accidentally published a press release that included a high-resolution photograph of a hardware wallet. Unfortunately, the image clearly showed the 24-word mnemonic seed phrase, and within minutes, an anonymous observer used those words to drain approximately $4.8 million (8.1 billion won) in seized tokens. 

In 2025, prosecutors in Gwangju lost control of 320 Bitcoins to a phishing attack on a government computer. Thankfully, the funds were eventually recovered.

Under the new plan, the NTS will form a Virtual Asset Management System Advancement Task Force (TF) to vet private companies. 

According to Ko Young-il, the Director of the NTS Advanced Virtual Asset Management System, the agency will prioritize security requirements, the size of the company, and its insurance coverage when selecting a partner. 

The NTS is also working with the Ministry of Public Administration and Security to establish a dedicated Digital Asset General Division. The new department will oversee the entire lifecycle of a seized asset, from when it’s initially acquired to the final sale and liquidation into the national treasury.

Can private custodians truly protect the state’s assets?

The National Police Agency (NPA) recently completed a draft for the first-ever guidelines on managing dark coins. They pose a technical problem to the proposed system because they often cannot be stored on standard hardware wallets (cold wallets); police must use software wallets (hot wallets) installed on dedicated servers. 

The NPA currently holds roughly 54.5 billion won (~$39.5 million) in seized assets, with Bitcoin accounting for over 90% of that value. Despite this, three of the NPA’s bidding attempts failed last year because the police budget for the project was only 83 million won. 

Assets held by professional custodians can also be targeted, as seen in the case of the United States. Cryptopolitan reported that the U.S. Marshals Service (USMS) utilized a private firm called CMDSS to manage its seized Bitcoin, but this did not prevent the alleged theft of $46 million in BTC by John “Lick” Daghita, the son of the firm’s owner. 

Suggestions that the government employ a public custody model have been made. The model involves a government-led professional trustee rather than a purely private contractor.

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